The Co-operatives Development Unit of EIDD
Response of all submissions received for Co-operatives Bill 2005 Public hearings
Submission by National Co-operatives of South Africa
Concerns raised by NCASA
NCASA raised a concern around the establishment of the Co-operatives Development Fund and reserves for provision of start-up requirement, education and training by the movement, equity funding and that it be legislatively sourced not only from co-operatives themselves but also from the state, its agencies, donor organizations and individuals.
Second major concern is that the Bill does not contain provision for the purpose and functions of secondary and tertiary co-operatives for them to be empowered to provide services to their members and promote co-operative development.
Central Co-operative Fund
In terms of the Constitution and Powers of a Co-operative, it states that"a provision for a share of the surplus may be transferred to a reserve fund, the proceeds which may not be divided amongst the members". A co-op has the power to decide on the reserve need to be set aside as provided in the legal constitution agreed upon and signed by all members during Annual General meetings. Individual co-operative has the power to decide on the allotment of the reserves.
If the capitalization of a co-operative through a co-op fund and reserves are to be included in the Bill will lead to regulatory impediments rather than allowing a co-operative through its constitution to independently decide the amount to be set aside as reserves, and the amount to be contributed to the Fund voluntarily with full understanding without creating unnecessary compliance burdens.
Legislating the Fund and reserves will directly reduce member’s voting rights, which is the key critical democratic component of a co-op differentiating a co-operatives from other forms of ownerships. The critical shortcoming of the current Act point are that it is complex, prescriptive, inaccessible, not user friendly, and empowered the registrar through dis-empowering a co-op and is not favorable for this policy which seek to promote the development of emergent co-operatives as enterprises and businesses.
Yes, it is not a bad idea for a movement to be sustainable and provide services to itself to avoid dependency syndrome to the government, but as highlighted that this policy is embedded to other government policies addressing the apartheid ills and has a clear economic agenda, it is critical that the benefits to other enterprises is also extended to co-operatives.
A patronage proportion as basis for tax benefit to the co-operative as submitted by NCASA, is defined in the Bill but not compulsory provisioned in the same Bill/Act to avoid compliance. But the constitution will determine how to deal with the issue of reserves. The tax issue is being discussed with NT to establish if co-operatives that will put aside an indivisible reserve will qualify tax deductions and what will be the monitoring needs.
Conversion of a Company to a co-operative Section,
The concern is that there is no provision for the conversion of a company to a co-operative as detailed in the current Act of 1981 and that only a co-operative can convert to a company or other entities. It is further proposed that the Bill should provide for the facilitation of speed conversion of other entities into co-operatives. Government concurs to retain the provision of Section 157 of 1981 Act.
SUBMISSION BY COSATU
Introduction and background response:
The conference that the dti held was not to solicit inputs from stakeholders for the co-operatives Bill but was to seek input and views from stakeholders on the implementation plan by all stakeholders. The Bill has been passed long time by Cabinet and introduced through parliamentary process. The overlapping of the conference and public hearing by a day does not justify unreadiness in preparations of the submissions since public hearings were massively advertised long before the conference. The conference was for two days and only one day coincided with the Conference. There is no need to revert back the consultation process to NEDLAC since this will further delay the finalization of the Bill. The input will be incorporated where reasonable and appropriate.
The explicit outlining of support in the Bill is unnecessary since the Bill is not administrative but developmental which is outlines the support in the purpose of the Act. Support measure will be detailed in the co-operatives strategy.
The dti has on several occasions stressed that the current SMME
Programmes will be extended and aligned to co-operatives and where gaps exist new instrument will be developed e.g. SEDA mandate, NEF, KHULA etc. To ensure an integrated approach to supporting co-operatives by government agencies, an interdepartmental committee has been established to ensure that the resources are harnessed across government. The dti is closely working with National Treasury on the issue of Co-operatives Bank Bill and linkages have been identified and synergised.
Concerns regarding Section 32(1), Board of Directors
There is no harm that section 32 brings in the Bill as it supports and guide what is embodied in the constitution.
Concerns regarding Audit
The audit is done for the protection of interest of members, for the enterprise to run and be managed on sound business principles and for its own sustainability. The government will subsidize the cost of audit compliance and the registrar of co-operatives will critically consider exempting very small co-operative producers as contemplated in section 55(1) of the Bill so as to ease compliance burden further.
It is imperative for co-operative enterprises to observe good governance through audit, but through the technical capacity building fund of the dti or instrument co-operative members will be capacitated over shorter period to be able to keep up records and draw up yearly financial statements for easy auditing therefore lowering the cost of audit.
In addition to the above, the Bill has opened up the scope and support for alternative auditing through alternative assurance providers, meaning any other person outside of the public accountants and auditors Act can be authorized to conduct audit for the co-operatives provided they comply with codified guidelines of South African auditing Standards. The government will take reasonable steps in ensuring that accounting standards are not lowered whilst ensuring that indirect barriers to entry are reduced.
Lastly, the route of accounting officers as assurance providers is totally supported due to the fact that it will bring South Africa co-operative auditing in line with international precedent, reduce cost of reporting function, increase the number of persons that can provide assurance services as well as correlate with other SA legislations, i.e. more assurance engagements than audit engagements which will build and transfer skills.
The co-operatives Bill 2005 does not supersede theIncome Tax Act of 1962 and other Acts and the issues will be detailed in the strategy with full knowledge of NT and SARS.
Co-operatives are enterprises targeted to operate throughout the mainstream of the economy and cannot be marginalized to be rural entities or non-profit organization but a special form of ownership or entity alternatively available to be formed by the citizens.
Unlawful use of the word co-operatives
A company cannot call itself a co-operative vice versa for purposes of control.
Amendment to constitution
There no confusion since all the provision in the Act supports provision in the constitution and co-operatives must not only comply with what is provided in the co-operatives Act, constitution but also other related laws.
There two kinds of general meetings viz the meeting by Board of Directors that can be called at anytime of the year to discuss issues affecting the co-operative or related to the co-op. and the Annual general meeting which should be held annually to discuss the financial matters and all resolution taken during the year for rectification by members. This section supports, simplify and guide what is in the constitution.
The reason for legislating the chapter ands not leave it in the constitution only, is for the protection of the members to ensure that members are part of the decision making process in a co-operative and also provide the platform to exercise their voting rights. If it is left to operate outside of the Act, we will see a lot of NCT co-operative management style. This supports the co-operative principle of economic participation by the members of a co-operative.
Chapter 9 and 10
Due to support provided, turn around strategies and take-over, co-operatives are encouraged to survive than close down.
With regard to appendixes, schedule in the co-operatives Bill, details are provided due to the differences in the sectors in which they operates e.g. financial services co-operatives, housing and consumer co-operatives .A housing co-operatives operates differently from a financial services co-ops and therefore it should have different provisions. It is easy to change schedule than changing an Act and therefore schedules must remains.
Chapter 2 section 14
A model statute cannot be attached as appendix to the Bill due to the fact that it is fully detailed in the Act.
This Bill has been widely consulted at NEDLAC and cannot be taken back to engage on number of provisions that ate not substantive issues that warrants debate at NEDLAC that level. Most of the COSATU submissions are what has been handled at NEDLAC.
Submission by Institute of Certified Public Accountants of South Africa
Provision of alternative auditors
They are submitting that the provision of an alternative auditors be recognized in terms of the South African auditing standards. They are proposing that guidelines be developed to ensure that those that will provide the alternative ASSURANCE services be recognized and have basic qualification to provide quality-assurance auditing services. Government sees this as an opportunity in increasing the new entrants into the profession without jeopardizing the standards. This will also build capacity of the previously disadvantaged groups and therefore empower co-operative members.
The alternative auditing approach should not allow the introduction of high barriers to entry to this field by indirect unintended consequences to this initiative. The alternative should confirm that the accounting policies have been applied consistently and will be required to issue of factual finding report on the compliance on the co-operative principle in an agreed format on simplified test basis in line with accredited unit standards.
The basic understanding of the Co-operatives Bill is critical to be able to certify the compliance of the essential financial provision. Such organizations or individuals will access support available to support access to such a service. The necessary changes will be effected for alternative audit in the Bill to complement the exemption by the Registrar of small co-op enterprises from complying with the Act.
The details of the submission though helpful, will not be detailed in the Act but as part of the implementation plan.
SUBMISSION BY ABC
The organization was one of the main representatives of the highly commercialized co-operatives at NEDLAC. The issue of the weighted voting system was widely debated and agreed upon by the majority of stakeholders that status quo cannot be maintained. The current Act defines a co-operative wrongly as closer to companies and hence a total removal of a chapter on investment shareholding since it distorted and diluted the principle of one-man one vote, which differentiate a co-operative enterprise from a company.
The issues of weighted voting arrangement need to be even monitored at a secondary level to avoid bigger co-operatives from disadvantaging emerging ones. The Co-operative policy is for ensuring that we promote the emergent sector in line with international principles as agreed by all SA key stakeholders that supported the ILO Recommendation 193 of June 2002 including Business constituency.
The co-operative principle of one-man one vote guarantee equality of members and member’s power to validate some on the decision that have been taken by Board of directors on behalf of a co-operative during the year.
If the weighted voting system is acceded to, the principle of one man one vote will be defeated and therefore gives room for any register co-operative to disguise as genuine co-operative whilst operating outside the ambit of a co-operative model.
It is our conclusive view that the weighted voting system should not be allowed in the Bill.
SUBMISSION BY NCT FORESTRY CO-OPERATIVE LIMITED - NATAL CO-OPERATIVE TIMBER
14 (1) (e) provides for one man one vote.
Response:one man one vote remains in the Bill to promote the principles of co-operatives which promote broader equal, collective ownership and democratic control and management of a co-operative enterprise by its members. This principle further differentiate a co-operative from other forms of businesses or ownership such as a Company or cc where the more the shares, the more voting powers you have in a company.
If the bigger guys in a co-operative will leave due to the voting rights being introduced in terms of how co-operative are to be managed collectively all over the world and also in line with the International standards and principles then that co-operative is a psuedo co-op.
If the current Bill is passed in its current form will be more empowering to the members and will prevent the bigger guys from further hindering access to empowerment in many areas, and automatic selling the assets of a co-operative with no say from the smaller emerging ones. The co-operative has already benefited millions from the dti on tax concessions and stand to loose if de-register as a co-operative. But closely looking at such support measures received, in value terms it benefit the bigger guys wherein it is accessed through the broader picture depicted.
22 (1) confidentiality of information
Co-operative members have the right to information in term of the Access to Information Act. The Bill has provided that only in cases where for a certain reasonable time the disclosure may be of commercial disadvantage to the co – operative the information may be withheld. It is on this basis that the section does not grossly violate the Directors’ rights as presented but promote transparency and openness to all members.
Currently, it is our view that this co-operative is hiding massive information to the smaller members from the previously disadvantage groups due to the knowledge of the industry. This is exploitative and need to be discouraged at all costs if we are to grow a strong co-operative movement, which will broaden the participation of the majority of blacks and targeted sectors in the economy as per the mandate of the policy and new legislative framework. Currently the bigger guys due their understanding of the sector and open denial to embrace empowerment in this country can harness opportunities coming to the co-op with no inclusion of the emerging ones.
Education and training will be key in implementing this policy due to the need of certain co-operatives that have benefited from subsidies for their growth wanting to keep the status quo. It is the right of the each co-operative to convert to any entity unless it respect the principle of co-operation if it chooses to be a co-op.
Bee and Co-operatives
Co-operatives Programme is the main Programme of the BEE Policy or Programme to promote enterprises of different kinds and forms. This Bill will promote its agenda of employment creation, poverty alleviation and empowerment of the PDIs through providing the relevant support and instruments to ensure that co-operatives participate meaningfully in all spheres of the economy including BEE, PPPs, and ownership holding in bigger multinationals and state-owned enterprises.